2016 (1) TMI 1393 - AT - Income Tax

Validity of notice issued u/s 148 - reasons to believe - Held that - It is evident that action under section 147 has been initiated by revisiting/re-appreciating the very same materials on the basis of which original assessment under section 143(3) was completed. As the AO while completing the original assessment has examined these facts and materials and passed the assessment order after application of mind, the reopening of assessment on the very same set of facts and materials would tantamount to review of the assessment order passed earlier that too on a mere change of opinion which is not permissible under law. Accordingly, in our considered opinion issuance of notice u/s 148 in the present case is invalid. As a natural consequence the assessment order passed in consequence thereof also has to be declared as invalid and accordingly is to be quashed. Before parting, we may make it clear that the decision rendered by us as above is purely in the context of validity of reopening of assessment under section 147 of the Act and cannot be considered to be a precedent for assessee s claim of depreciation on GDS and interconnect TAS at the rate of 60% by treating them as a computer. That issue has to be decided according to its own merit in an appropriate case. - decided in favour of assessee. Grant depreciation on TAS for the full year of the eligible depreciation - Held that - On a perusal of the order passed by CIT(A) it is observed that after examining the relevant facts and materials on record he has given a categorical finding of fact that interconnect TAS was put to use in July 2000 hence the observation of the AO that it was used for less than six months is not proved on record. D.R. has not brought any material before us to controvert the above said finding of the Ld. CIT(A), we are unable to accept the plea of the Department. Accordingly, this ground is also dismissed.

Issues Involved:
1. Validity of Reopening of Assessment under Section 147.
2. Depreciation Rate on Gateway Digital Switch (GDS).
3. Depreciation Rate on Interconnect System - Traffic Accounting System (TAS).
4. Interest under Section 244A on Refund.
5. Maintainability of Department's Appeal.
6. Validity of Assessment under Section 148 beyond Four Years.

Issue-Wise Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147:
The assessee challenged the validity of the notice issued under Section 148 and the reassessment proceedings under Section 147 on the grounds that no new tangible material was brought on record and the reassessment was based on a mere change of opinion. The Tribunal entertained the additional grounds raised by the assessee, considering them purely legal issues affecting the jurisdiction of the AO. The Tribunal found that the AO had examined the assessee's claim of depreciation on GDS and interconnect TAS during the original assessment proceedings and accepted the claim after applying his mind. Thus, reopening the assessment on the same material amounted to a review of the earlier order on a mere change of opinion, which is not permissible under law. The Tribunal quashed the reassessment order, declaring it invalid.

2. Depreciation Rate on Gateway Digital Switch (GDS):
The assessee claimed depreciation at 60% on GDS, treating it as a computer. The AO restricted the depreciation to 25%, categorizing GDS as plant and machinery. The CIT(A) upheld the AO's decision, disallowing the higher depreciation rate. The Tribunal, while quashing the reassessment order, did not adjudicate on the merits of the depreciation claim, making it a matter of academic interest only.

3. Depreciation Rate on Interconnect System - Traffic Accounting System (TAS):
The assessee claimed 60% depreciation on TAS, which the AO restricted to 25%, treating it as plant and machinery. The CIT(A) allowed 60% depreciation on the hardware and software components of TAS but restricted the installation and commissioning expenses to 25%. The Tribunal, while quashing the reassessment order, did not adjudicate on the merits of the depreciation claim, making it a matter of academic interest only. In the Department's appeal, the Tribunal upheld the CIT(A)'s finding that TAS was put to use in July 2000, thus eligible for full-year depreciation.

4. Interest under Section 244A on Refund:
The assessee prayed for interest under Section 244A on any refund arising from the appeal. The Tribunal's decision to quash the reassessment order rendered this ground academic, and it was not adjudicated.

5. Maintainability of Department's Appeal:
The Department challenged the relief granted by the CIT(A) regarding the first reassessment order. The Tribunal dismissed the Department's appeal, finding that the reassessment was invalid. Consequently, the grounds raised by the Department became redundant.

6. Validity of Assessment under Section 148 beyond Four Years:
The Department reopened the assessment for the second time beyond the period of four years, restricting the depreciation claim to 50% for assets used for less than six months. The CIT(A) found that the assets were used for more than six months and allowed full depreciation. The Tribunal upheld the CIT(A)'s decision, dismissing the Department's appeal.

Conclusion:
The assessee's appeal was allowed, quashing the reassessment order under Section 147. The Department's appeal and the assessee's cross-objection were dismissed. The Tribunal's decision primarily focused on the invalidity of reopening the assessment based on a mere change of opinion without new tangible material.

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